A Beautiful Cluster of Gold

 | Dec 19, 2012 | 10:30 AM EST  | Comments
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I see a pattern and timing for a possible low coming up in gold. Let's look at the parameters on a daily chart of gold futures. I'm using the continuous chart mostly because the Fibonacci timing work sets up beautifully on this one, and not so much on SPDR Gold Shares (GLD). It might have to do with the fact that futures were open when Hurricane Sandy hit the East Coast, but GLD was not. So let's give this a time window, give or take a couple of days. Let's start with the timing work.

Gold Futures
Source: QST

Note that if you measure the Feb. 28 high to the May 16 low, that move lasted 55 trading days. We are currently 51 trading days down from the Oct. 5 high so far. There is some similarity here. The time projection of 55 days actually comes in on Dec. 24. Also, notice that the Oct. 5 high to the Nov. 5 low lasted 21 trading days. As of Dec. 18, we were 17 trading days down from the Nov. 23 high. The 100% time projection of those 21 days also comes in on Dec. 24.

Now let's look at all of the cycles:

  • 100% Feb. 28 high - May 16 low from the Oct. 5 high = Dec. 24
  • 100% Oct. 5 high - Nov. 5 low from the Nov. 23 high = Dec. 24
  • 0.618 of the Oct. 5 high to the Nov. 5 low = Dec. 24
  • 1.618 of the Nov. 5 low to the Nov. 23 high = Dec. 24
  • 1.618 of the Dec. 29, 2011, low to the May 16, 2012, low = Dec. 24

This is a beautiful cluster of timing cycles. Bottom line: If Gold is trading lower into this window, the odds for a low and reversal back up are much higher than usual.

Let's consider price next. I see two support decisions in this market. The first zone in the futures contract comes in at 1650.06 to 1662.20, and the second comes in at 1621.52 to 1630.22 (if you are trading GLD, the support levels come in at 160.20-160.89 and then 157.54-158.29). I lean towards the second zone because of the price symmetry with the Oct. 5 high to the Nov. 5 low projected from the Nov. 23 high, which also overlaps a 0.618 retracement back to the May 16 low. This also includes a 1.618 extension, which makes this a two-step pattern setup. The ideal scenario would be for a test of the second zone around the Christmas holiday. It may not happen that way, but that would be the best scenario. Even if this timing does not match up with ideal price work, I'm still going to watch for a possible upside reversal around this time window.

I'm preparing for a possible tradable low in GLD against the time/price support parameters described above. I do not have a buy trigger that suggests a buy entry just yet, but I plan to update you as this setup unfolds. If I don't see reversal indications against one of these zones, I won't enter this market. Please refer to my recent guidelines for more on trigger entries.

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